It’s graduation season. Plenty of high school and college students are looking forward to future phases of their life, maybe even retirement. According to new research from Charles Schwab, on average people between the ages of 16 and 25 in the US think that they’ll retire when they are 60. Math says otherwise. These folks need some money tips for graduates to make their dreams come true.
According to Gallup, today’s average retirement age is 61. That’s pretty close to expectations of our 20-year-old. However, today’s retiree expected to work another five years and retire at 66.
That means some retirees got lucky, did better than expected, and clocked out ahead of schedule. Others were unlucky and had to forego five years of needed income because of health problems, layoffs, ageism, and other factors.
Some Bad Retirement Math
According to the US Centers for Disease Control, someone who is 20 today has an average life expectancy of 80 total years. If that 20-year-old plans to work for 40 years and then live retired for another 20 years, that means they’ll spend one-third of their adult life retired.
Is our 20-year-old learning and applying the financial wisdom needed to fund living one-third of their adulthood in retirement?
It doesn’t seem like it from Schwab’s research. For instance, the young people surveyed averaged just $1,000 in savings and more than $8,000 in student loan debt. People starting out can expect some debt and struggle, but we’re talking seriously negative net worth.
The research also says many young people don’t understand the difference between good debt and bad debt. Good debt helps you build your knowledge, skills, and assets. Bad debt finances fleeting consumer impulses at high interest rates.
Also, more than half expect to inherit money from their parents, compared to the average 21 percent of people who actually inherit anything.
Money Tips For Starting Off Right
What can people just starting out do to make retiring at 60 a possibility? Here are some money tips for graduates:
- Start investing early and let compounding do the majority of your retirement savings for you. Money today is worth so much more than money in the future. To learn about the power of compounding, check out my retirement calculator.
- If you didn’t take Econ 101, or even if you did, watch this video to learn how the economy works in just 30 minutes. That way, you won’t be blindsided by the next recession.
- Prepare for and expect to have multiple jobs in multiple careers during your life. Continually learn and invest in yourself.
- Prepare for and expect times when you are unemployed, either out of choice or fate. Have emergency savings. Use these free times wisely to invest in yourself.
- If you’re bitten by the FIRE (Financial Independent Retire Early) bug, get a reality check.
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